Thanks to a steady stream of healthcare consumers, the medical office sector has remained largely resilient in the face of economic headwinds.
Indeed, people fall ill regardless of the health of the economy, and as a result, medical office has not seen the same sort of pullback that other industries have experienced.
Although a niche sector, according to the 2013 Emerging Trends in Real Estate report from Urban Land Institute and PricewaterhouseCooper, “medical office space presents compelling investment opportunities as the nation’s health care industry balloons to take care of graying baby boomers.”
In addition, despite whatever criticism people might have about President Obama’s healthcare reform bill, it will ultimately result in health insurance for nearly 30 million additional Americans, which means more medical office space will be required.
The ULI/PwC report notes that “the demand from doctors, clinics, labs and rehab providers is ‘crazy to ignore.’ Landlords should not have problems leasing space anywhere near hospital centers and medical complexes.”
What’s most interesting about medical office is the sheer number of doctors who are banding together to join large networks that are currently competing with hospitals.
In addition to the doctors on staff, there is also a sizable administrative component — from insurance paperwork to payroll — that has increased in scope.
This growth has allowed the healthcare industry to also compete directly with office and retail tenants for space.
In fact, landlords in Westchester County or Long Island, where the office market is not quite as robust, are converting portions of their buildings to medical office.
Also important to note is a growing acceptance among medical professionals to share space, specifically in New York City.
There are currently 20 hospitals dotting the island of Manhattan — from Hospital Row on the Upper East Side, which includes the Hospital for Special Surgery, to Beth Israel in the teens — and each doctor employed by a hospital wants a nearby network, so many competitors share not only the same zip code but also the same building.
In fact, it’s not uncommon to have two or three different institutions represented in the same building.
To this point, an umbrella agency representing five private hospitals in New York City recently handed Savitt Partners the assignment of finding additional medical office space for three of its hospitals.
Our search led to a single building with different spaces available that would meet the needs of all three hospitals.
One transaction between the umbrella agency and the landlord resulted in a win-win situation for everyone involved — the landlord negotiated one lease instead of three and the hospitals benefited from the transaction efficiencies: below market rent, a generous work letter and several months of rent-free occupancy.
In cases such as this, Savitt Partners’ specialized knowledge, personal contacts at municipal and governing authorities and our unusually broad range of experience has helped medical office tenants successfully navigate the maze of healthcare-specific zoning laws, building codes, certificates of occupancy, landmark issues, ADA compliance and other untold regulations in order to secure the best possible locations.